Audit and Assessment under GST

The revenue authorities are in the forefront to complete the historical audits/assessment under the erstwhile tax laws for the period up to June 2017. The CBIC has released GST audit plan for the year 2019-20 vide F. No. 381/49/2019 on 25.06.2019. The audit plan released by the CBIC takes the modified form of the EA-2000, which was issued for audits envisaged under the erstwhile Central Excise and Service tax laws. Which would mean that the, assesses should be geared up for the assessment/audit under the Goods and Service Tax Laws.

piece of paper with text GST GOODS AND SERVICES TAX on the background of books, pens, on a white background

Meaning of the term ‘Assessment’ under GST

The term ‘Assessment’ under the tax statue would generally mean determining the tax liability and the procedure for collecting or recovering the same. The tax laws promulgated by the Indian Union (For Instance, Central Excise Act, 1944, Finance Act, 1994 etc.) and also the State Governments (For Instance, Karnataka Value Added Tax Act, 2003, Karnataka tax on Entry of Goods Act, 1979 etc.) had moved to ‘Self-Assessment’ based tax compliance, which would mean that the tax payer would assume the driver seat and determine the value of goods/service and pay the applicable taxes (with certain exception being manufactured tobacco products like ‘Cigarettes’, wherein the Central Excise authorities continues to strictly supervise the movement of goods).

The Goods and Service Tax Law being no exception, has provided the registered taxable person to self-assess the taxes payable and furnish a return for each tax period as specified under Section 39 read with Section 59 of Central Goods and Service Tax Act, 2017 (‘CGST Act, 2017’).

However, Self-Assessment, at times may lead to in-appropriate interpretation of statues, leading to depositing lesser taxes or claiming irregular/incorrect input tax credits, refunds, thus paving way for the revenue authorities to intervene.

Section 2(11) of the CGST Act, 2017 defines the term “Assessment” to mean determination of tax liability under this Act and includes self-assessment, re-assessment, provisional assessment, summary assessment and best judgment assessment.

Assessment under the GST Laws

The ensuing paras discuss on the various means available for the tax authorities to conduct Assessment under the CGST Act, 2017 i.e.,

  • Section 60 – Provisional Assessment;
  • Section 62 – Assessment of non-filers of returns;
  • Section 63 – Assessment of unregistered persons;
  • Section 64 – Summary Assessment;

Provisional GST Assessment 

The provisional assessment is carried out when the taxable person is unable to determine the value of goods or services or both or determine the rate of tax applicable thereto. The taxable person may then request the proper officer in writing giving reasons for payment of tax on a provisional basis and the proper officer shall pass an order, within a period not later than ninety days from the date of receipt of such request, allowing payment of tax on provisional basis at such rate or on such value as may be specified by him.

The provisional assessment is subject to executing ‘BOND WITH SURETY’ as determined by the proper officer. The proper officer shall pass then final assessment within 6 months. The Joint/Additional Commissioner may, on sufficient cause being shown and for reasons to be recorded in writing, extend date for finalising the assessment for the further period not exceeding six months and by the Commissioner for such further period not exceeding four years.

The taxable person would be liable to pay interest after the final assessment, in the event the tax earlier paid is less, and would eligible for refund with interest prescribed under Section 56 of CGST Act, 2017, in case of excess payment. 

GST Assessment of non-filers of returns 

Every registered person is bound to comply with the provisions of the law by filing regular returns, whether or not any supplies of goods or services or both have been made during such tax period as envisaged in Section 39 of the CGST Act, 2017. Non-compliance with the same, would entail issuance of notice under section 46 of the CGST Act, 2017.

Any further default post service of the notice, would empower the proper officer to proceed to assess the tax liability of the said person to the best of his judgment taking into account all the relevant material available or which is gathered and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates.  

GST Assessment of unregistered persons

Every person indulged in supply of goods or services or both shall obtain registration under the provision of the law. Where a taxable person fails to obtain registration even though he is liable to do so or whose registration has been cancelled under section 29(2) of CGST Act, 2017 but who was liable to pay tax, the proper officer may proceed to assess the tax liability of such taxable person to the best of his judgment for the relevant tax periods and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates.

It is pertinent to note here that, though best judgment assessment involves certain amount of guess work, however, the authorities are duty bound to make an honest and fair estimate of the income and should not act arbitrarily, there is always a certain degree of guess work in best judgment assessment. – Kachwala Gems v. JCIT (2007) 158 Taxman 71 (SC).

Summary GST Assessment

This is permissible only during exceptional circumstances. Summary assessment is permissible only to protect interest of revenue and where delay is likely to adversely affect revenue.

The proper officer may, on any evidence showing a tax liability of a person coming to his notice, with the previous permission of Additional/Joint Commissioner, proceed to assess the tax liability of such person to protect the interest of revenue. Further, if the taxable person to whom the tax liability is imposed is not ascertainable, then the person in charge shall be liable to pay the assessed tax or any other dues.

Furthermore, as per Section 160 and 161 of CGST Act, 2017, it is ought to be noted that the Assessment or re-assessment cannot be challenged/invalidated on minor grounds. Errors apparent from the records can be rectified.

Audit under the GST laws

Section 2 (13) of the CGST Act, 2017 defines the term ‘Audit’ to mean, the examination of records, returns and other documents maintained or furnished by the registered person under this Act or the rules made thereunder or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of this Act or the rules made thereunder.

The ensuing paras discuss on the various means available for the tax authorities to conduct Audits under the CGST Act, 2017 i.e.

  • Section 65 – GST Audit by the department;
  • Section 66 – Special audit
  • Audit by C&AG

GST Audit by the department 

The Commissioner or any officer authorised by him, by way of a general or a specific order, may undertake audit of any registered person for such period, at such frequency and in such manner as may be prescribed. The tax authorities may conduct audit at the place of business of the taxable person and/or at their office.

The registered person shall be informed, by way of a notice, sufficiently in advance, not less than fifteen working days, prior to the conduct of audit. The audit shall be completed within a period of three months from the date of commencement of audit (i.e. the date from which the records and other documents, called for by the tax authorities, are made available by the registered person or the actual institution of audit at the place of business, whichever is later). The Commissioner, for reason to be recorded in writing may extend the time period for a further period not exceeding six months.

The proper officer shall, within 30 days of completion of audit, make available the findings to the registered person. The findings may further lead to initiating action under section 73 or 74 of the CGST Act, 2017.

Special GST audit

The special audit may be ordered, if at any stage of scrutiny, enquiry, investigation or any other proceedings before him, any officer not below the rank of Assistant Commissioner, having regard to the nature and complexity of the case and the interest of revenue, is of the opinion that the value has not been correctly declared or the credit availed is not within the normal limits, he may, with the prior approval of the Commissioner, direct such registered person by a communication in writing to get his records including books of account examined and audited by a chartered accountant or a cost accountant as may be nominated by the Commissioner.

The special audit is in addition to any other audit and the cost of the audit shall be determined and paid by the Commissioner.

The results of the special audit in terms of detection of tax not paid or short paid or erroneously refunded, or input tax credit erroneously availed, or input tax credit wrongly availed or utilized, may lead to the proper officer to initiate action under section 73 or section 74 CGST Act, 2017.

GST Audit by C&AG 

The moot question that is still lingering over the minds of the assesses is, whether the C&AG is also empowered to conduct GST audit. C&AG is an authority appointed under Article 148 of Constitution of India. Further, Article 149 of Constitution of India empowers C&AG to conduct audits of Government and semi-Government undertakings.

The Hon’ble Delhi High Court’s in its decision in the case of Mega Cabs Pvt. Ltd., Vs. UOI & Ors 2016 (43) S.T.R. 67, held that audits by C&AG of tax paying assessee as per Rule 5A(2) of Service Tax Rules, 1994 are ultra vires the constitution. However, said decision has been stayed by the Hon’ble Apex Court.

Further, in case of Association of Unified Tele Services Providers & Others Vs. UOI 2014 (9) SCR 780 Hon’ble Apex court held that, wherever government monies are involved, audits by C&AG is within the purview of Article 149 of the Constitution of India and cannot be construed as ultra vires the Constitution. Having said this, revenue in form of tax is something that the tax payers is duty bound to deposit with the government at right intervals. Hence, it would be of no surprise that C&AG knocks the doors of assesses for audit of GST records.

Concluding Notes

The assesses across the industry have taken divergent views on various aspects concerning GST. It goes beyond doubt in saying that the Authority of Advance Ruling has its own contribution in fuelling confusion over GST position on identical issues.

Hence, the assesses should be prepared for the Assessments/Audit by re-visiting the tax position in light of recent Circulars, Judgments etc.

Furthermore, it is worth noting here that the aforesaid GST audit plan issued by CBIC talks about visiting the office of the assesse, based on the risk matrix. However, in light of the Government moving towards contact-less administration, on account of COVID pandemic, it is advisable for the CBIC to conduct the Audit/Assessment over video-conferencing & other virtual means and suitable direction is issued in this regard to the filed formations.

The views expressed in this note are personal views of the authors and does not represent any authority under GST laws, nor does it represent any other person or group of persons of the organisation to which the authors relate to, also it does not bind any reader to abide to anything written or expressed in this note, unless they are also of same views.

“Take care of yourself and your dear ones. Stay indoors unless necessary and stay healthy”

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October 2021